1. Development
Key Issue #4: “Why do less developed countries face obstacles to development?”

2. To promote development, PINGs seek to improve the indicators…economic, social, and demographic
PINGs are improving, but the gap is growing
Example: PINGs have improved income by $4,000, but PEDs have improved by $20,000
Improvement in PINGs

3. Differences in consumption
1/5 of the world’s population living in PEDs consume 5/6 of the world’s goods
14% of the world’s people living in Africa only consume about 1%
Differences in consumption

6. Two fundamental obstacles to PINGs trying to develop
Adopting policies that successfully promote development
Finding funds to pay for development
Two fundamental obstacles to PINGs trying to develop

7. Development through self-sufficiency
For most of the 20th century, self- sufficiency was the more popular of the development alternatives
Key elements:
Investment is spread across all economic sectors
Focus is on promoting wealth across income levels, not just the rich
Barriers are set on imports (tariffs, taxes, quotas, requiring licenses)
Development through self-sufficiency

8. Example of Self-Sufficiency: India
India made efficient use of barriers to trade
Indian businesses were discouraged from producing goods for export
Businesses produce for India
If private companies were unable to make a profit by selling only to India, then the government would provide a subsidy
Example of Self-Sufficiency: India

9. Problems with self-sufficiency
Inefficiency: self-sufficiency protects inefficient industries
Business has little incentive to improve quality, lower production costs, reduce prices, or increase production
Large Bureaucracy: self-sufficiency requires large bureaucracy to administer the controls
A complex administrative system encouraged abuse and corruption
Problems with self-sufficiency

10. Development through international trade
A country identifies its distinctive/unique assets
What product can the country manufacture and distribute at a higher quality and a lower cost than other countries?
Development through international trade

11. Rostow’s Development Model
The traditional society – a country that has not started development; large amounts of people in agriculture and “nonproductive” activities (religion and military)
The preconditions for takeoff – the process of development begins when an elite group begins to invest in technology and infrastructure
Rostow’s Development Model

12. Rostow’s Development Model cont…
3. The takeoff – rapid growth is promoted in a few number of activities (i.e. textiles, food products)
The drive to maturity – modern technology diffuses to more industries which experience rapid growth and workers become more skilled
The age of mass consumption – the economy shifts from heavy industry to consumer goods
Rostow’s Development Model cont…

13. More on Rostow’s Model Each country is in one of the five stages.
PINGs will achieve development by moving through the stages
Two factors that encouraged Rostow’s optimism:
Europe and Anglo-America have achieved stage five and have been joined by Eastern Europe and Japan
PINGs have raw materials
More on Rostow’s Model

14. Examples of the International Trade Approach
The Four Asian Dragons: South Korea, Singapore, Taiwan, and Hong Kong
Influenced by Japan
Concentrated on clothing and electronics
Petroleum Rich Arabian Peninsula States:
The increase in petroleum prices in the 1970s greatly enriched these countries
Examples of the International Trade Approach

15. Problems with the International Trade Alternative
Uneven resource distribution
Market stagnation
Increased dependence on PEDs
Problems with the International Trade Alternative

16. Recent Triumph of International Trade Approach
This approach has been adopted by most in recent years
India switched to an international trade approach
India’s GDP grew 7% per year in the 1990s
Manufactured goods accounted for more than 4/5 of exports from PINGs in 2000
Recent Triumph of International Trade Approach

17. World Trade Organization
Established in 1995 by countries representing 97% of world trade
Reduces barriers to trade:
Countries negotiate reduction or elimination of international trade restrictions
The WTO enforces agreements
World Trade Organization

18. Financing Development
PINGs lack money!
Loans – mainly for infrastructure
The World Bank
International Monetary Fund
Structural Adjustment Programs – in exchange for repaying debt, lending agencies require PINGs to create conditions favorable for international trade
Financing Development

19. Fair trade – products are made and traded according to standards that protect workers and small businesses in PINGs
Producer Standards
Worker Standards
Fair Trade